On June 7th, Credit Suisse (NYSE:CS) initiated coverage of the Indian Exide Industries, with an "Outperform" rating. Numerous news stories on June 8 incorrectly identified the company as the Georgia (US) based Exide Technologies. See here, here, and here. It didn't help that Exide Tech is a battery maker doing a large portion of its business with the auto industry, while Exide Industries is an Indian autoparts maker. As far as I can tell, Credit Suisse does not cover Exide Technologies.

Instead, XIDE rallied over 15%. Even after listening to the conference call, I could not figure out why, so I asked my panel of green money managers, and my friend and battery stock expert John Petersen, Esq. Petersen pointed me to the reporting mistake.

Some Good News

Despite the gloomy headline, there was some good news in the quarterly report.

On Friday, I pointed to a large jump in free cash flow. Garvin Jabush, manager of the Sierra Club Green Alpha Portfolio, pointed to the fact that Exide Tech beat revenue estimates by $32 million as well as the improving cash flow, and to progress trimming expenses. During the conference call, Exide President and CEO James Bloch said that he could see no reason why Exide should not be able to achieve "high single digit" operating margin over the next few years. Given that current operating margin is below 3%, this would easily more than triple earnings, even without any revenue growth.

Jeff Cianci, CEO and CIO at equity investment fund Green Science Partners, also pointed to free cash flow, and said "it looks like a bit of short covering as well." Short covering makes sense, since the surprise rally would have caught many shorts by surprise. If you're short, and your stock starts to rally for reasons you can't explain, the prudent thing to do is to get out as quickly as possible.

Nevertheless, without the confusion regarding Credit Suisse and Exide Industries, there simply was not enough good news to counteract the large earnings miss and explain the rally.